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February 2008

Check the Costs of a Check Cashing Store

Some people rely on check cashing stores to cash their payroll, government or personal checks. While they may seem more convenient than having a checking account at a bank, they cost a lot more.

Banks beat out check-cashing stores significantly, according to AARP, based on a study conducted by New Equality. A person who makes $1,050 after taxes each month and uses a typical check cashing store will pay an average of $219.24 in fees a year, compared with $30 a year for a typical basic checking account.

Check cashing stores charge customers very high fees for their check cashing needs - up to 5 percent of the check amount. Cash a $250 check and pay 5 percent or $12.50. To cash two paychecks a month, you may pay more than five times as much in fees at a check cashing store than you would at a bank with a regular checking account.

Consumers can avoid paying high fees by opening or using a basic checking or savings account at a bank, savings and loan or credit union. Think about the costs before using a check cashing store.

The monthly fees for a basic checking account are usually less than the fee a check cashing store charges to cash just one check. Even if consumers don't have an account, most banks, savings and loans and credit unions will cash government and payroll checks for less than the check cashing store charges. Check with your local lending istitutions for fees and for help establishing an account.

If consumers receive a federal benefit, wage, salary or retirement benefit, they can open an Electronic Transfer Account (ETA), that allows a consumer to receive federal government payments electronically through direct deposit for a cost of $3.00 or less. Check with local banks to see if they offer this service and to learn more.

If a consumer uses a check cashing store, he or she should:

• Ask for the fee in dollar amounts. Many check cashing stores post their fees in percentages, leaving customers unsure of what it really costs to cash the check. By requesting the fee in dollar amounts, consumers can clearly understand the costs.
• Insist on an itemized receipt. Many check cashing stores charge different fees depending on the time of day and the employee who cashes your check. Ask for an itemized receipt that lists the amount of the check, the fee, and the amount of cash received. Then compare the amounts with the fees that were posted.

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